Is your Fixed Cost Path Determining? Takeaway#170 ask Raekwon

“Your heart get tested, and gunplay is only an investment“

Raekwon (Butter Knives ♦ Shaolin vs. Wu Tang)

Takeaway#170: Let’s get disciplined today. CAPEX can be a deceptively large and protracted commitment. Is this machinery with short lifespan and negligible residual value? Is this intellectual property with amortization impacts that shield EBITDA and ATCF for increase total enterprise value? BPM says: Fully understand the impact before stepping into the arena.

EBITDA: Earning Before Interest, Taxes, Depreciation & Amortization

ATCF: After Tax Cash Flow

CAPEX: Capital Expenditures

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Attack on brand equity is ultimately an attack on real cash flows

They tried to tell me that aliens built the pyramids

…For every inch they cut the nose off the Sphinx

I make my jeweler add a few more links

–Kanye West ♦ Chain Heavy

Takeaway #162: An assault on your mission statement is an assault on your brand equity. If you permit the competition to chip away at the core strategy and consumer recognized asset you are effectively allowing them to depreciate your asset without your gaining any of the tax advantages of the competition imposed amortization. It turns into a goodwill write-off, not a non-cash addition back to your EBITDA multiple. Accordingly, you will have to find a new way to add to the value and beef up the real cash flows. Add back the links…

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